ANALYSIS: Etihad champions equity partnerships

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News that Etihad Airways is one of the parties in talks about taking a stake in grounded Indian operator Kingfisher Airlines illustrates the Gulf carrier's appetite for acquisitions remains undimmed.

Kingfisher has confirmed the talks with Etihad about a possible equity investment, with speculation pointing to a potential purchase of a 48% stake in the troubled airline. But, it adds, the Gulf carrier is one of several possible investors, and that matters are only at the "negotiation stage".

Etihad has made no secret of its interest in India as a market. Earlier this month sources confirmed to Flightglobal that talks had been taking place for several weeks with a view to acquiring a stake in Jet Airways. Etihad's interest in investing in a local carrier may have been increased after New Delhi eased foreign ownership restrictions - long campaigned for by Kingfisher - to allow up to 49% in Indian carriers to be owned by overseas companies.

Speaking earlier this month during the Marketforce-organised Future of Air Transport conference in London, prior to the Kingfisher announcement, Etihad chief executive James Hogan said the carrier continued to look at further acquisition opportunities. But, he says, there are clear criteria for such deals. "How can we achieve that top-line network and cost benefit? Otherwise don't do it," he said. He confirmed the airline was "happy to take a look at Indian carriers" but said there was nothing firm to report.

Etihad has cemented its reputation as a serial-acquirer over the last year. The airline has bought or increased its stakes in Air Seychelles to 40%, Air Berlin to 29%, Virgin Australia to 10% and Aer Lingus to 3% over the last 12 months. It is also looking to acquire Air Berlin's frequent flyer programme. TopBonus.

All this builds on the 41 codeshares the airline has in place, which, Hogan says, generate around a fifth of its revenue. This has helped the airline, alongside its own organic growth, to rapidly scale-up the business.

Hogan believes the carrier's strategy of equity partnerships gives it the ability to deliver more cost benefits than membership of a global alliance. "For various reasons doors [at the alliances] were closed to the Gulf carriers," Hogan says. "We took the decision to focus on bilaterals. Being independent has a value," he says.

In particular, Hogan argues equity partnerships have allowed it to progress beyond the revenue benefits global alliances generate. "The alliances really haven't driven any cost advantages. We took it a step further with equity partnerships," he argues.

"We believe it is a smarter way of growth than buying another 100 aircraft," he says. "This isn't the old Swissair model of acquiring brands. This is about how do we use this scale to improve the bottom line. To use our investments to get the best possible costs.

"[We are looking at] where are the centres of excellence? Why do we need to duplicate? Where can we get the economies of scale?" Hogan cites the work it has done with Air Berlin to combine their respective Boeing 787 order books as one example.

Etihad's involvement with Air Berlin - which formally joined Oneworld earlier this year - has not stopped it and the German carrier inking a wide-ranging codeshare deal with SkyTeam's Air France-KLM.

"I think Oneworld are very pragmatic in the partnerships their members have. Air Berlin is in Oneworld. We supported that position to join it 100% and it's working well for them," says Hogan. "From a business perspective there is an opportunity to come together with Air France-KLM on a regional basis."

Air Berlin and Air Seychelles are both loss-making, but Hogan points to progress on the financial performance of both. He says Air Berlin "made its third quarter numbers", while Air Seychelles is on track to break even this year. "They have gone from a $25 million loss to break even, it may even make a bit of money [this year]," he says.

Part of the change at Air Seychelles has included replacing its Boeing 767s with a pair of Airbus A330s, and connecting the carrier via Abu Dhabi to its own European services. "You cannot run an airline of that size with the overheads of a legacy carrier," he says. "Taking out the overheads, taking out the 767s, and putting in the A330s. For a small carrier that makes sense."